Dollar falls versus euro after home sales improve

DeborahLevine

WilliamL. Watts

NEW YORK (MarketWatch) -- The dollar fell to its lowest level since April on Monday, as U.S. stocks added to gains after a report showed sales of U.S. new homes rebounded in June by more than economists had forecast.

The euro extended gains, which started in the Asia trading session as investors continued to be satisfied with the results of the stress tests conducted on major European banks.

The dollar index
DXY, -0.46%,
which tracks the greenback against a basket of major currencies, fell to 82.017 from 83.493 in North American trading late Friday. It touched 81.988 intraday, the lowest level on a closing basis since the end of April, giving up all the gains through the worst of the sovereign-debt crisis.

The euro
EURUSD, +0.7313%
held within its recent trading range, rising to $1.2999 from $1.2916 Friday. The shared currency briefly rose about $1.30 but hasn't closed above that level since early May.

The dollar lost ground versus the Japanese yen
C_JPY
to ¥86.90, paring an earlier loss but still down from ¥87.44.

That's not far above the dollar's recent lows, after falling to ¥86.15 in November.

The euro rose to fetch ¥112.97, up from ¥112.11. Versus the yen, the euro had fallen to ¥107.71 at the beginning of the month, the lowest since 2001.

The British pound
GBPUSD, +0.0400%
rose to $1.5490 from $1.5425. The sterling briefly topped $1.55, the best levels on a closing basis since late April.

The dollar has lately fluctuated between responding positively to good U.S. economic news and reacting to stocks as an intervening measure of investors' appetite to shift out of the relative safe-haven of the greenback and into riskier assets, including stocks.

"The bigger question is now risk-on or risk-off rather than stress tests," said strategists at Citi.

"Continued positive corporate earnings reports appear to be holding sway," said Brian Dolan, chief currency strategist at Forex.com. "The passing of the stress test 'event risk' may propel risk higher in the near-term, but with more questions raised than answered, we think gains in risky assets are likely to prove unsustainable."

U.S. new-home sales rebounded in June after falling to an all-time low in May, the Commerce Department estimated Monday. The increase in new-home sales to a seasonally adjusted annual rate of 330,000 was well above the 316,000 pace expected by economists surveyed by MarketWatch. Read about new-home sales.

Reports due out this week are expected to be on the weak side, showing consumer confidence this month slipped and second-quarter growth actually slowed from the first quarter. Read about upcoming economic reports.

The stress tests on European banks found that seven of the 91 banks that were examined failed to have enough capital to withstand a scenario of losses on sovereign debt. Read about the test results.

"The response to the tests has been remarkably calm," said Andrew Wilkinson, strategist with Interactive Brokers in Greenwich, Conn.

The results offered few surprises, with no major banks falling short. Economists and analysts have criticized the tests for a lack of rigor on a number of fronts.

Strategists at UBS in Zurich questioned the sustainability of the euro's recent rebound in the face of plans for substantial fiscal consolidation across the euro zone. The euro has climbed back from a four-year low set below $1.19 at the end of last month.

"We expect the euro will face renewed downward pressure on concern over relative growth prospects. Also, Friday's stress-test results are unlikely to provide any significant support given lingering concerns over a European banking system that is manifestly still reliant on [European Central Bank] liquidity," they wrote.

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